Time is running out for Democrats on Bush tax cuts

OLIVIER DOULIERY/ABACA PRESSPresident Obama and the Democrats must move quickly.

By Steven Pressman
You may have heard of the “99ers,” the millions of Americans who have exhausted the maximum 99 weeks of unemployment benefits and still can’t find work.

But let’s talk about another group of “99ers” — the Democrats in Congress, who have roughly 99 days left to enact an effective economic stimulus package.

The period between now and the end of the lame-duck session, likely in mid-December, is crucial because of what economists call lags. Legislation typically affects economic growth six to 12 months after it is passed; Six months after that, unemployment rates fall.

The 2009 stimulus bill is a good example of lags in practice. It was signed by President Obama in February 2009, with the economy declining sharply. In late 2009 and early 2010, due to the stimulus, economic growth turned strongly positive. This spring and summer, unemployment fell to 9.5 percent — not a lot to brag about, but better than 10 percent.

Now the 2009 stimulus is ending, while state and local governments raise taxes and cut spending. This is why economic growth has fallen to an annual rate of 1.6 percent, too low to further reduce unemployment.

Because of lags, next year is too late to create millions of jobs in time for the 2012 presidential election. Moreover, barring the totally unexpected, Republicans should gain a substantial number of seats in the November mid-term elections. Their strategy this year has been to block legislation that might help American families and the economy.
We should not expect anything different from the new Congress in January. Even worse, Senate Democrats will no longer be able to end a filibuster with the support of just one or two moderate Republicans.

The 2012 election is thus beginning to look like the 1980 election, with Democrats getting pink slips from the American people that they failed to help.

There is an alternative, however. While they still have the votes and the time, the heavily Democratic Congress needs to pass another economic stimulus.

Any stimulus bill must make job creation its Job No. 1. No sensible person doubts that there is plenty that needs to be done. Our roads and bridges are crumbling, our rail system is a national disgrace, and our education system is rapidly falling behind other developed nations. Strapped for money, state and local governments are laying off tens of thousands of police officers, teachers, librarians, and other employees.

Job No. 2 is to help the other 99ers, the millions who have run out their unemployment benefits and face utter destitution. Extending unemployment benefits another year will help them keep food on the table and a roof over their head. It will spur additional spending. It will also help people afford the gas, phone service, etc. necessary to find a job.

Fortunately, we can afford to pay for this.

The Bush tax cuts expire at the end of 2010. The Tax Policy Center estimates that this will bring $366 billion dollars per year into the U.S. Treasury over the next 10 years. Some of this money can be used to create jobs directly and extend unemployment benefits.

We will even have money left over to deal with the Damocles sword hanging over real economic recovery — housing. With so many homeowners underwater, and with banks holding mortgages worth less than their face value (and thus reluctant to lend), government aid is essential.

Part of the problem is that many low-income and middle-income homeowners are in low tax brackets and receive little or no tax breaks for their mortgage interest and property taxes via income tax deductions. This makes it difficult to make their monthly housing payments, increases foreclosures and reduces home values.

Converting these deductions into tax credits, and making the credits refundable for those owing no taxes, would help homeowners trying to stay in their homes. It would also help the struggling financial institutions that own these mortgages, and get them lending again.

We need to end the Great Recession before it turns into another Depression. Time is rapidly running out for the Democrats. It is 99 days and counting.

Steven Pressman is professor of economics and finance at Monmouth University and treasurer of the Eastern Economic Association.